Netflix: We 'should have avoided' unlimited iiNet and Optus deals

Netflix has said that in signing deals with Optus and iiNet to allow customers to access Netflix without it counting towards their download quota, the company acted against its strong stance for net neutrality.

Streaming giant Netflix has expressed regret for agreeing to deals with Optus and iiNet to allow customers to access the service without it counting towards their monthly data quotas.

When Netflix launched in Australia in March, iiNet and Optus both announced that customers could access Netflix unmetered, with data downloads not counted against their monthly quotas. This placed Netflix at a competitive advantage over rivals like Stan and Presto, which still have data counted.

At the time, Netflix's director of corporate communications and technology Cliff Edwards told ZDNet that the deal was not in breach of the company's strong stance for net neutrality, because it is the ISPs themselves that made the decision to offer the data for free.

"That's something they decided to do because we bring the bits closer to the customer to ensure a better experience," he said.

But the company is now having second thoughts. In an investor note in the company's Q1 results released on Thursday, Netflix backed its strong stance on net neutrality across the globe, and said that it had decided not to sign any more agreements like the ones signed with Optus and iiNet.

"Data caps inhibit internet innovation, and are bad for consumers. In Australia, we recently sought to protect our new members from data caps by participating in ISP programs that, while common in Australia, effectively condone discrimination among video services (some capped, some not)," the company said.

"We should have avoided that, and will avoid it going forward. Fortunately, most fixed-line ISPs are raising or eliminating data caps in line with our belief that ISPs should provide great video for all services in a market and let consumers do the choosing."

Netflix has an open peering policy, and is peering out of Megaport, Equinix, and NSW-IX in Sydney. This makes delivering the Netflix traffic from the Australian library much easier for Netflix and the ISPs.

"The idea is essentially, they don't have to pay as much for the use of the trans-Pacific cable to get the content, so they can pass on the savings to customers," Edwards said.

A spokesperson for Optus confirmed that while the free subscription deal was a limited-time offer, the company would continue to offer unmetered access to Netflix for fixed broadband customers.

"While Optus thinks unlimited data is the best option for anyone who wants to stream lots of entertainment content, we chose to unmeter Netflix content so that no matter how much data is included in their plan, all our broadband customers can watch as much Netflix as they want," the spokesperson said.

iiNet also confirmed it would continue to offer Netflix unmetered.

"We plan to continue unmetering Netflix traffic. Our customers are loving the product," a spokesperson told ZDNet in a statement.

In a conference call on Thursday, Netflix CEO Reed Hastings said that the company is learning country by country as it expands.

"We're continuing to expand international. We're learning country by country. We don't get everything right upfront, but we fix that," he said.

Hastings said the company had been "bullish" about its global expansion into markets such as Australia and New Zealand in the last quarter, but declined to reveal where the company is seeing more success, noting that in each international market, Netflix has faced strong competition from local rivals.

Netflix again faced questions about customers using virtual private network (VPN) services to access content from Netflix while based outside of the US. There has been concern that Netflix will be seeking to crack down on VPN use, but Hastings said it is hard for the company to track.

"With VPN usage, that's where someone has the money to pay for content, they want to access that content ... so they'll use a VPN to come to the US virtually over the net to pay for content," he said.

"It's certainly less bad than piracy, [but] it is not something we encourage. It's actually very hard to detect, because VPN gets very good at covering their tracks for all the obvious reasons."

He said that the company's goal to be global by the end of 2016 will see the issue of VPNs "disappear".

"It will disappear because we will be able to meet the demand directly in all the countries," he said.

The company discusses VPN use frequently with studios, Netflix's chief content officer Ted Sarandos said, but the company is also attempting to sign more global deals.

"The good news is that in the piracy capitals of the world, Netflix is winning. We're pushing down piracy in those markets by getting access. The best way to make the VPN issue a completely non-issue is global licensing, which we are continuing to pursue with our partners," he said.

Netflix's chief financial officer David Wells said that for the company, its pricing is still determined by the amount of piracy in specific countries.

"Piracy is a governor in terms of our price in high piracy markets outside the US.We have to compete with that," he said.

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